01—Abstract
Summary
Summary of the 10-Q filed July 31, 2019. Cited figures are marked; the original filing is the authoritative source.
Advanced Micro Devices, Inc. (AMD) reported its financial results for the second quarter and the first six months ending June 29, 2019.
The company experienced a decrease in net revenue for both periods compared to the prior year, primarily driven by declines in the Computing and Graphics segment due to lower graphics channel memory sales and reduced demand for Radeon channel products. While the Enterprise, Embedded and Semi-Custom segment also saw a revenue decrease, it was partially offset by higher EPYC server processor sales. Despite the revenue decline, AMD saw an improvement in its gross margin percentage to 41%a from 37% in the prior year, attributed to higher sales of Ryzen and EPYC processors which carry higher gross margins.
Operationally, R&D expenses increased slightly, while Marketing, General and Administrative expenses saw a significant rise. The company managed to reduce interest expense due to lower debt balances. The balance sheet shows an increase in cash and cash equivalents, though overall cash and marketable securities decreased slightly from year-end.
Financially, AMD reported net income of $35 millionb for the quarter and $51 million for the six months, down from $116 million and $197 million respectively in the prior year. The company ended the period with $1.13 billion in cash, cash equivalents, and marketable securities and has access to a $500 million secured revolving credit facility, which it believes is sufficient to fund operations over the next 12 months. Significant litigation remains ongoing, though the company believes potential liabilities will not have a material adverse effect.
02—Key points
Key Highlights
- Net revenue decreased by 13% for the quarter ($1.53 billion vs $1.76 billion) and 18% for the six months ($2.80 billion vs $3.40 billion) compared to the prior year.
- Gross margin percentage improved to 41% for both periods, up from 37% in the prior year, driven by higher-margin Ryzen and EPYC processor sales.
- Operating income decreased significantly, falling to $59 million for the quarter (from $153 million) and $97 million for the six months (from $273 million).
- Net income declined substantially, to $35 million for the quarter (from $116 million) and $51 million for the six months (from $197 million).
- Research and Development expenses increased by 4% for the quarter and 7% for the six months, indicating continued investment in product development.
- Marketing, General and Administrative expenses increased by 33% for the quarter and 30% for the six months, reflecting increased go-to-market activities.
- The company exercised a new $500 million secured revolving credit facility, with no outstanding borrowings as of June 29, 2019, and holds $1.13 billion in cash, cash equivalents, and marketable securities.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2019, Advanced Micro Devices Inc kept $0.02.
- Revenue$1.53B100.0%
- Cost of revenue−$910.0M59.4%
- Gross profit$621.0M40.6%
- Operating costs−$562.0M36.7%
- Operating income$59.0M3.9%
- Interest, other & tax−$24.0M1.6%
- Net income$35.0M2.3%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2019filed July 31, 2019Financial Statements
Q2 FY2019 against Q2 FY2018
| Line item | Q2 FY2019Q2 FY2018 | Change |
|---|---|---|
| Revenue | $1.53B$1.76B | −12.8% |
| Cost of Revenue | $910.00M$1.10B | −17.6% |
| Gross Profit | $621.00M$652.00M | −4.8% |
| R&D Expenses | $373.00M$357.00M | +4.5% |
| SG&A Expenses | $189.00M$142.00M | +33.1% |
| Operating Income | $59.00M$153.00M | −61.4% |
| Interest Expense | $25.00M$31.00M | −19.4% |
| Net Income | $35.00M$116.00M | −69.8% |
| EPS (Basic) | $0.03$0.12 | −75.0% |
| EPS (Diluted) | $0.03$0.11 | −72.7% |
| Shares Outstanding (Basic) | 1.08B972.00M | +11.5% |
| Shares Outstanding (Diluted) | 1.11B1.15B | −3.3% |
05—Questions
Frequently Asked Questions
What were the primary drivers of the revenue decrease in the second quarter of 2019?
The primary drivers for the revenue decrease were a 13% decline in Computing and Graphics net revenue and a 12% decrease in Enterprise, Embedded and Semi-Custom net revenue. Specifically, lower sales of Radeon channel products and reduced graphics channel memory sales, due to declining blockchain demand, impacted the Computing and Graphics segment. The Enterprise, Embedded and Semi-Custom segment saw lower semi-custom product revenue.
How did AMD's profitability change compared to the previous year?
AMD's profitability decreased significantly. Operating income fell to $59 million for the quarter and $97 million for the six months, compared to $153 million and $273 million in the prior year periods, respectively. Net income also saw a substantial decline, with $35 million reported for the quarter and $51 million for the six months, down from $116 million and $197 million respectively in the prior year.
What is the company's financial position regarding cash and debt?
As of June 29, 2019, AMD had $1.13 billion in cash, cash equivalents, and marketable securities. The aggregate principal amount of outstanding debt obligations was $1.3 billion. The company also entered into a new $500 million secured revolving credit facility and believes its current cash balance and the credit facility are sufficient to fund operations over the next 12 months.
Are there any significant legal proceedings that could impact the company?
AMD is involved in several legal proceedings, including shareholder derivative lawsuits and patent infringement cases (such as the MediaTek litigation). While the company is actively defending itself, based on current information, management believes the potential liability from these matters will not have a material adverse effect on its financial condition, cash flows, or results of operations.
06—Continue